Chapter 1 - Intro to Managerial Economics

Theory of the firm

In its simplest version, the firm is thought to have profit maximization as its primary goal.

Primary goal of the firm

Long term expected value maximation

Expected value maximization

Optimization of profits in light of uncertainty and the time value of money

Value of the Firm =

Present Value of Expected Future Profits

Theory of the firm

consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behavior, structure, and relationship to the market.

Managerial economics

helps managers recognize how economic forces affect organizations and describes the economic consequences of managerial behavior.

Managerial economics

offers a comprehensive application of economic theory and methodology to management decision making